The years since the COVID crisis first began have seen wave after wave of landmark insurance litigation setting and changing the precedent for UK business claims.
Taking place between January 21 and January 24, the Bath Racecourse & Ors v Liberty Mutual case was the latest of these, as the Court of Appeal is set to rule on whether COVID-related losses are covered by non-damage access clauses. Later in the month, on January 28 and 29, judges will also decide if policyholders' payouts can be reduced by the furlough payments and government support they received during the pandemic.
In an interview with Insurance Business, James Breese (pictured), partner, policyholder disputes, at Stewarts, the UK law firm representing lead claimant policyholder Bath Racecourse in these appeals, highlighted some of the key aspects and potential impacts of the cases.
Offering background to the appeals, he noted that Bath Racecourse (and its sister companies within the Arena Racing Group) are seeking to recover business interruption losses that were caused by the COVID-19 pandemic, under a composite policy that covers the whole group of companies. “Insurers have admitted liability for those losses but not the extent of them.”
There are two key issues on appeal, according to Breese:
At first instance, he said, the Bath Racecourse policyholders succeeded on issue one but lost issue two. As to what it means for businesses, he highlighted that both of these issues are worth at least hundreds of millions to insurers, if not billions. “For policyholders,” he said, “those with COVID-19 business interruption claims should revisit whether they could recover multiple limits of indemnity if there is a group of companies, and even businesses without COVID-19 claims may find the decision to be welcome clarity for their insurance programmes.”
The outcome of the decision on the furlough issue will be of interest to all watching, he said, regardless of whether they have an outstanding business interruption claim. The value of claims may increase for UK businesses depending on the outcome, which will also address, as a matter of principle, whether the government’s furlough scheme directly benefitted insurers in this context despite being designed to assist businesses and employees during a time of crisis.
Identifying some of the milestones so far, Breese highlighted that the Bath Racecourse policyholders were described by the court at first instance as the “big winners” of the outcome at that stage, which has “provided encouragement that policyholders’ analysis is the correct one”.
Breese noted that the non-damage denial of access clauses are a category of wordings that were found by the Divisional Court in the Financial Conduct Authority’s test case in 2020 not to respond to cover COVID-19 business interruption losses. “That decision was not appealed by the FCA,” he said, “but insurers have since disputed that claims under such clauses will fail on causation grounds.”
That was the main defence insurers have deployed, he said, but it has been substantially undermined by subsequent litigation in which similar causation defences have been tested (albeit in relation to different wordings). Policyholders have since argued that a causation defence in relation to the non-damage denial of access wordings has no realistic prospects of success given the weight of judicial authority that now exists.
So what will the judge’s decision regarding whether policyholders’ payouts can be reduced by the furlough payments and government support they received during the pandemic mean for policyholders?
“For those UK businesses that have previously recovered COVID-19 business interruption losses from insurers, they must go back to check whether they could recover additional sums if the decision on furlough is reversed,” he said. “UK businesses may be able to claim from insurers the sums that insurers deducted from indemnity payments if they took the credit for the furlough payments, as they are currently entitled to.
“For those with unpaid claims, the calculation of indemnity would not include a deduction for the furlough payments if the decision on this issue is reversed.”
Touching on the impact of these appeals, Breese said, this litigation should be of real interest to those in the insolvency world. The UK economy suffered demonstrably during the pandemic and has since. Many businesses could not recover from COVID-19, particularly in the absence of support from their insurers.
As a result, he said, insolvency practitioners and other stakeholders should carefully consider whether dormant COVID-19 claims lie unrealised in insolvent estates, given the potential recoveries that could be available to creditors. The potential recoveries could increase substantially subject to the outcome of the Court of Appeal hearings this month.
“Even if the insolvent businesses pursued COVID-19 business interruption claims in or around the onset of the pandemic in 2020, they may not be precluded from still pursuing that claim,” he said. “Insurers may have been correct to decline the claim in 2020, but the legal position has since shifted dramatically in favour of policyholders. Limitation issues could start to arise in early 2026, however, so the time to bring such claims is fast running out.”
